Dear CIGAs,
Reuters carried a news flash that turned the currency markets inside out, upside down and topsy turvy this morning. I give it to you in the same exact form that it flashed across my screen…
REUTERS DOLLAR TRADES AT SESSION LOW VS EURO AFTER GEITHNER SAYS OPEN TO MOVING TO SDR-LINKED CURRENCY SYSTEM
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That immediately sent the Dollar crashing lower, the Euro soaring, and gold abruptly reversing course and shooting nearly $18.00 higher. Combine that with new home sales data rising 4.7% and durable goods orders coming in better than expected and it sent equities sharply higher and helped undercut any safe-haven bid that the Dollar was receiving as it fed into notions that the worst news for the economy is over. It seems that a shift in sentiment is occurring which recognizes that the economy has stiff head winds in front of it but also is of the mind that the bad news has reached a plateau. That remains to be seen in my opinion but for now enough of a consensus is emerging that it has served to put a temporary floor under US equities. It will take another batch of bad news from some quarter to chase bottom pickers out of the equity arena.
Going back to Geithner – I find his view quite disturbing because he, along with Fed Chairman Bernanke, was specifically asked at a Congressional hearing yesterday whether or not he agreed with the call of China and Russia for a replacement of the US Dollar as the global reserve currency. Both men categorically rejected that call. Now, the very next day, we get this headline. What in the world is going on with this man?
The Forex markets have absolutely no idea what to make of him as witnessed by the extreme volatility that his comments unleashed upon that arena in today’s trading session. The Euro was up a full cent, dropped all the way back to unchanged, moved back up another half cent and careened all over the place. As word filtered into the market clarifying those comments, traders began to have second thoughts about what he actually said and flipped positions going back the other way. Some just said, “the heck with this”, and closed out everything they had on and went for a walk or a sandwich. Think about what we are witnessing here by this insane price action – market participants are attempting to somehow put a value on a currency but no one has the foggiest idea of how to do that in the current environment and with the continual contradictory statements coming from the administration’s point man on the US economy. It is my view that Tax Cheat Tim makes the bumbling Inspector Clousseau look like Hercule Poirot. I suspect that when the history of these events is chronicled, his name is going to figure prominently and that not in a flattering way.
Bonds too have become victims of this same sort of volatility although that is coming from a different source – they are caught between supply bears and demand bulls, the latter of which are banking on Federal Reserve buying to sop up some of this excess supply. So far supply side bears seem to be winning the day as bonds have moved back down towards yesterday’s session lows.
Gold’s run higher off the Geithner report did not last long for as soon as the Euro wilted, gold came down off its session highs. It still managed to hold in the plus column however helped by the rebound back higher in the Euro and by the firmness in the mining shares as indicated by both the HUI and the XAU which for the second day in a row outperformed gold bullion prices. The HUI, if it can hold near the current session high at 336 looks like it wants to trend higher. The XAU has an even more impressive chart than the HUI especially when viewed on the weekly chart. It has managed to move above the 50 week moving moverage and generated a bullish upside cross of the 10 week moving average over the 40 week moving average. Trend following players will be watching to see how the XAU closes this coming Friday for clues to its next move.
On the monthly chart, the XAU is just slightly above the 50% retracement level drawn off the July 2008 high and the October 2008 low. That is a key technical level to watch as it is closely watched by trading funds and large investors. Ditto for the HUI on the monthly chart as it has reached the exact 50% retracement level off 336.19 which is a mere .17 away from today’s session high. Bulls have it within their power to take both indices higher if they can perform from now until the next Tuesday, the end of the month. A convincing monthly close above the 50% retracement level will bring buying into the shares at the first of April.
It still appears to me that gold’s most probable near-term course is a range trade with dip buying coming in above the $900 level and bullion bank selling appearing on rallies up to $960. Open interest shows the roll out of April is gaining full strength as traders move into the June. Long liquidation into short covering was the characteristic of yesterday’s session as evidenced by the fall off in total contracts.
Data from the EIA undercut the recent strength in crude oil as it showed a larger than expected increase in crude stocks. It should be understood that the price of crude oil is one of the many factors that goes into the computer algorithms that inform hedge funds and index funds whether to buy or sell commodities as a whole. Weakness in crude tends to bring selling into quite a large number of individual commodity markets notably corn and sugar as well as gold.
In what I view as related news, check out this headline…
UK population must fall to 30m, says Porritt
This is coming from Gordon Brown’s “green advisor”. There is one pesky detail in all of this. According to the article, Britain’s current population is roughly 61 million.
According to the likes of this chap Porritt, filthy Anglophiles emit way too much carbon dioxide when they exhale. That nasty gas is the source of all of our climate woes according to these self-appointed prophets and priests of climate change. The solution – just eliminate the carbon dioxide exhalers and “poof”, the problem goes away. Read the story if you think I am making this up.
Some of you might not remember it, much less have seen it, but years ago there was a movie made named “Logan’s Run”, starring Michael York. It was a futuristic sci-fi movie detailing a supposedly ideal society in which the leading characteristic was that no one ever grew old and all lived in harmony with abundant prosperity and happiness. They achieved this state of nirvana by means of a red light which began to glow in the inset in the necklaces of all who had been chosen to go and die so as to eliminate their drain on society. Michael York’s character (Logan) was one that was tasked with tracking down those who rebelled against the suicide signal and eliminated them, that is, until his necklace began to glow and it was his turn to enter the extermination chamber. He then begins to “run” in an attempt to secure his own life and liberty from the tyranny of the architects of the system. It would now appear that the writer of that story was not all that far from the truth of where the future is headed.
Some of us have known for a long time now that the West was committing suicide with its absurd socialistic policies, political correctness and stupid immigration policies, but I did not think it was possible for even the leftists to go as far as advocating the death of many in their own society. God help us for these people are now very close to the reins of power. Maybe they can team up with the fools in the state of Missouri who are now targeting those who sport Ron Paul bumper stickers or who oppose the UN and cling to their guns and religion. After all , you could probably find about half the population of the US that falls into one of those categories that the elitists in Missouri came up with for their potential terrorist suspects. The list could be given to Porritt and his companions over this way, who no doubt share his sentiments, and they could clean out half of Britain and half of the US in one fell stroke. It would not surprise me to learn that those who advocate honest money, i.e. gold, would be on the list of expendables especially when so much of our exhaled carbon dioxide is given to denigrating the current failed monetary system.
Since I am a trader I would have to figure out how to deal with such a development. I suppose the best thing to do would be to immediately short the British Pound should these whacked out climate change greenies have their desires granted. By eliminating half of their population, tax revenues would plummet along with corporate sales. We could also buy shares of stock in British based crematoriums and funeral homes. Obviously, this is pure sarcasm for the benefits of those who might not have read my musings until recently.
Why am I writing about this? Because it is a symptom of the internal rot of the West which is the cancer that is destroying our economic and monetary systems. The loss of ethics, virtue and character is what resulted in the downfall of ancient Rome. It occurred firstly in the character of the people and then affected all of their institutions. It is visible today as well in our own beloved society and unless a quick halt to the insidious process is achieved, we too as a people and a nation will go into decline. While it might be a bit unorthodox, my own view is that no currency can be “strong”’ unless the character of its people and its institutions is first strong. From that character is derived the policies and practices that lead to confidence and stability. Lacking those, nothing is left except chicanery, duplicity and gimmickry. Those can only hoodwink for so long – truth always prevails in the end, even over tyranny.
Beware, my friends, of those who cloak their intentions under the guise “for the common good”. These flattering dissemblers are the most dangerous of all.
Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini
